Update: Rauschenberg Canyon and the IRS

Over the past couple of days there have been some really good articles hitting the main stream press.  On the front page of the NY Times Sunday paper was an update, and pretty much a recap of the Rauschenberg Canyon IRS despute.  The Financial Times had a good article on Asian collectors who are now in a position to repatriate Asian art, and a front page Monday article in the Washington Post on the death of collector Robert Vogel.

Today, I will post on the Rauschenberg NY Times article and later in the week possibly post on the other articles of interest.  Click HERE to read my earlier post on the Rauschenberg and the original Forbes article with link.

The NY Times article is pretty much a recap of the earlier Forbes article, but it does get some comment from a member of the IRS Art Advisory Panel.  It also states the IRS is in negotiations with the estate on the tax issue.  It will be interesting to see how this turns out, if a settlement is reached, or if it goes to tax court for a decision.

The NY Times reports

So how did the panel arrive at the $65 million figure? Ms. Barron said, “When you come up with a valuation you look at comparable works and what they have sold for at public or private sales.”

The I.R.S. declined to comment.

Mr. Lerner told Forbes magazine, which reported the dispute in February, that Joseph Bothwell, a former director of the agency’s Art Appraisal Services unit, had told him “there could be a market for the work, for example, a recluse billionaire in China might want to buy it and hide it.” Mr. Bothwell has since retired from the I.R.S. Ms. Barron said she did not consider any hypothetical black-market buyer.

Still, the notion that the I.R.S. might use the black market in this way to determine a fair market value has surprised some tax experts. James Joseph, a tax lawyer with Arnold & Porter in Washington, noted that the I.R.S. has taxed illegal contraband at its market value, but added: “I don’t know of any instance where the I.R.S. has assumed taxpayers will engage in an illegal activity in order to value their assets at a higher amount. Al Capone went to jail for not paying income taxes on his illegal income, but this is very different than that.”

At the moment, tax experts note that the I.R.S.’s stance puts the heirs in a bind: If they don’t pay, they would be guilty of violating federal tax laws, but if they try to sell “Canyon” to zero-out their bill, they could go to jail for violating eagle protection laws.

Mr. Lerner said that since the children assert the Rauschenberg has no dollar value for estate purposes, they could not claim a charitable deduction by donating “Canyon” to a museum. If the I.R.S. were to prevail in its $65 million valuation, he said the heirs would still have to pay the $40.9 million in taxes and penalties regardless of a donation.

Then, given their income and the limits on deductions, he said, they would be able to deduct only a small part of the work’s value each year. Mr. Lerner estimated that it would take about 75 years for them to absorb the deduction.

“So my clients would have to live to 140 or so,” he said.

Source: NY Times